Supreme Court justices signal they will cut whistle-blower protection

U.S. Supreme Court justices signaled they will narrow an anti-retaliation provision in the 2010 Dodd-Frank financial law, hearing arguments in a case that could insulate publicly traded companies from some whistle-blower lawsuits.

Justices from across the court’s ideological spectrum voiced support Tuesday for Digital Realty Trust Inc., which is fighting a lawsuit by a former company official who was fired after complaining internally about alleged violations of federal securities laws.

Digital Realty contends that Dodd-Frank authorized whistle-blower lawsuits only by people who had reported the alleged misconduct to the Securities and Exchange Commission. Lower courts are divided on the issue.

U.S. Supreme Court
Andrew Harrer/Bloomberg via Getty Images

Justice Elena Kagan said Digital Realty’s reading of Dodd-Frank squared with the law’s language, even if the outcome was “peculiar” and “probably not what Congress meant.” The law “says what it says,” Kagan said.

The disputed provision is one of two major federal protections for corporate whistle-blowers. The 2002 Sarbanes-Oxley Act lets workers press claims with the Labor Department, even if they didn’t report the alleged violation to the SEC. Dodd-Frank allows whistle-blowers more time to file cases and authorizes larger awards.

‘Ordinary Whistle-Blower’

Justice Stephen Breyer said Dodd-Frank appeared designed to protect only those people who assist the SEC. “The ordinary whistle-blower is protected under Sarbanes-Oxley,” Breyer said.

San Francisco-based Digital Realty points to a provision in Dodd-Frank that defines whistle-blowers as people who provide information to the SEC. The suing employee, Paul Somers, says that definition doesn’t apply to the anti-retaliation part of the law.

The Trump administration is backing Somers, defending an SEC rule that says internal whistle-blowers are protected even if they don’t lodge a complaint with the agency.

Justice Neil Gorsuch questioned whether the court should defer to the SEC’s interpretation. He said the agency didn’t provide any explanation for its interpretation and hadn’t given any public notice that it was considering such a broad definition.

"That seems to me to put the whole administrative process on its head," said Gorsuch, who has questioned the court’s practice of deferring to agencies when they interpret statutes.

The SEC received more than 4,200 reports of misconduct in 2016.

The case, which the court will decide by June, is Digital Realty v. Somers, 16-1276.

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